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Power levels are determined by the power level of your weapons, 'nades, and shields. Putting it simply higher = better, higher DPS, higher shield capacity, everything. New drops are based on the power level of your currently EQUIPPED items and I think someone said in another thread that it's their base level rather than their modded level can't confirm this as I've not really looked into it that hard

I keep seeing this mentioned but have no idea what it means or what it affects or how to deal with it.

No, devs have explained it piecemeal here and there, but they've never made a post that just straight explains how it really works. Some people think enhancing your weapons with salvage increased power of drops, some don't. Some think you have to have your highest-rated gear equipped to get better drops, some don't (supposedly there's a secret, hidden power rating based on the highest rated loot that you've ever had, equipped or not, but I haven't seen that reflected in-game).

Would be really nice for whichever dev designed the system to just do a quick FAQ, but the bottom line is the more gear you get, the more your power rating will increase, so make sure to hit all those Sieges you see on the map (you get drops from every mob at the siege, whether or not you damaged it) and most importantly, loot everything on the ground BEFORE the siege ends. Currently there's a bug(?) where the Siege phase immediately closes at the end of the event, kicking you to the normal world and poofing all your loot.

New drops are based on the power level of your currently EQUIPPED items and I think someone said in another thread that it's their base level rather than their modded level can't confirm this as I've not really looked into it that hard

So this is where it gets sketchy. Your visible power rating is based on what you have equipped, but supposedly there's a secret power rating based on what you've looted (presumably to allow players to use whatever gear they prefer, vs whatever has the highest power rating). I'm not convinced that's working as intended. If it is, I would LOVE to see a toggle in the gameplay settings allowing us to view the 'secret' rating.

There is a loading screen tip that says drops are based on the highest power level item you've acquired. There is still some mystery surrounding this though, as many seem to think its based on your equipped power level. Maybe they'll just straight up tell us one day.

Its kinda wonky at the moment. I'm now a hair over 2000 max PL. I'll get mod drops, shields and grenades in the range of high 1900s to 2000. On the other hand, my weapons are consistently lower in drops, in some cases like 150 less. So my PL will cause 2000+ PL mobs to spawn, but drop lower gun loot.

Its odd, because if I go to the store (which costs money, and surprise scrip is kinda rare compared to costs) guns I buy will spawn 'sorta' near my PL, and mission rewards that give guns (I think its only the Main missions at this point) will give me guns closer to my PL, the ground drops and even arkfall chests will give less powerful weapons.

I thought in one of the Twitch streams they mentioned you didn't need to have the item equipped for it to matter for power level increase consideration. In other words, the game looks at the items in your inventory. The guy with the beard said that, if I'm not mistaken.

I found the video on Twitch where Rarnok mentions what I just said above. It's on the 6/22 PC Open Beta stream. Go to time index around 9:43. He says the best 2 weapons you've ever had in your inventory, best shield, best grenade are what determines the power of future drops.

So for your active power level it's an average of what you have equipped but not what determines the power level you are going to get for future drops.

This is good because as he states, if you get a shotgun that is really high power level but you don't like shotguns, you don't have to equip it and you'll still get future drops based on the highest item level of items you've had.

I found the video on Twitch where Rarnok mentions what I just said above. It's on the 6/22 PC Open Beta stream. Go to time index around 9:43. He says the best 2 weapons you've ever had in your inventory, best shield, best grenade are what determines the power of future drops.

So for your active power level it's an average of what you have equipped but not what determines the power level you are going to get for future drops.

This is good because as he states, if you get a shotgun that is really high power level but you don't like shotguns, you don't have to equip it and you'll still get future drops based on the highest item level of items you've had.

In practice it seems the equation is reduced when it comes to other weapons though. Yes your highest gun contributes to your overall PL which contributes to your drops, but at a smaller scale for guns than 'not-guns'. But yeah, the 'good' thing is that the PL of individual guns in a particular class seems to have no bearing on drops of other guns not of that type.